China has finally started to implement a long-awaited tax on overseas investment gains, which has long been overlooked by the wealthy in the country, according to a report from Bloomberg seen by Business Arabia.
In recent months, several wealthy individuals in major Chinese cities have reported receiving requests for self-assessments or have been summoned by tax authorities for meetings regarding possible payments, including arrears from previous years. This move reflects the government’s increasing urgency to broaden its revenue sources amidst declining land sales and economic growth slowdown. It also aligns with President Xi Jinping’s “common prosperity” campaign, aimed at achieving a more equitable distribution of wealth in the world’s second-largest economy.
Some wealthy individuals face taxes of up to twenty percent on investment gains, while others face penalties for late payments, with the final amount being negotiable.
The implementation of these taxes coincides with the adoption of the Common Reporting Standard in 2018, a global system aimed at preventing tax evasion through information exchange. While local regulations mandate taxing residents in China on their worldwide income, including investment gains, this has not been strictly enforced until recently.
The details of the extent and duration of these efforts are unclear. Some targeted individuals have stated that they own foreign assets worth up to ten million dollars, while others are investors in companies listed on the stock exchanges of Hong Kong and the United States.
China automatically exchanges information with around 150 jurisdictions regarding tax-resident individuals’ accounts. Patrick Yip, Deputy Head of Deloitte China, commented that China already has a rich database that tax authorities can use to identify tax collection opportunities.
In recent years, China’s wealthy individuals have been under scrutiny since President Xi launched a stringent campaign targeting sectors such as internet, finance, and real estate, negatively impacting the confidence of the wealthy in a country that was seeing a new billionaire emerge every few days in 2018. Boston Consulting Group estimated that around one trillion dollars of personal wealth, out of approximately twenty-four trillion dollars, was held overseas. China has also seen an increase in wealthy emigration, with over 1.2 million individuals leaving the country since 2021, according to United Nations data.
China’s fiscal government revenues have decreased by twenty-six percent from January to August compared to the previous year, totaling around fourteen trillion eight hundred billion yuan. Additionally, income from government land sales decreased by twenty-five percent. In an attempt to boost the economy, policymakers have announced a set of stimulus measures, including initiatives to swap local government debts.
Tax experts expect a stricter enforcement of the individual income tax law in the future, with the redirection of wealthy individuals’ foreign income becoming a key focus for China’s tax authorities.
